NEW YORK, NY - MAY 24: Paul Graham of Y Combinator and Charlie Rose (R) during TechCrunch Disrupt New York May 2011 at Pier 94 on May 24, 2011 in New York City. (Photo by Joe Corrigan/Getty Images for AOL)

Photo: Joe Corrigan, Getty Images For AOL

NEW YORK, NY - MAY 24: Paul Graham of Y Combinator and Charlie...

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Entrepreneur and Loopt founder Sam Altman, 28, will take the Y Combinator reins from his mentor, Graham.

Photo: Nati Harnik, ASSOCIATED PRESS

Entrepreneur and Loopt founder Sam Altman, 28, will take the Y...

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Social news website reddit.com was one of the first eight companies to receive funding from Y Combinator, in summer 2005. Co-founder Alexis Ohanian speaks at the University of Toronto Bahen Centre.

Photo: Vince Talotta, Getty Images

Social news website reddit.com was one of the first eight companies...

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Social reading and publishing website Scribd was supported in Y Combinator's third round, in the summer 2006. Scribd users have access to more than 300,000 books from more than 900 publishers. Photo: Scribd screenshot

Social reading and publishing website Scribd was supported in Y...

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OMGPOP created multiplayer mobile games, like Draw Something, and was supported by Y Combinator in summer 2006. Zynga acquired OMGPOP in March 2012.

Photo: OMGPOP.com

OMGPOP created multiplayer mobile games, like Draw Something, and...

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San Francisco-based cloud storage service Dropbox was supported by Y Combinator in 2007. The company is now on IPO watch, after its main rival Box quietly filed for its initial public offering in January 2014.

Cloud database service Cloudant received support from Y Combinator in summer 2007. The Boston-based company enables developers of large web and mobile apps to load, store, analyze, and distribute operational application data. IBM acquired Cloudant in February 2014. Photo: Cloudant screenshot

Cloud database service Cloudant received support from Y Combinator...

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Founded in 2007, Cloud application platform Heroku aims to help developers build and deploy web apps. Y Combinator supported it in winter 2008. Heroku has worked on apps with Asics, LevelUp, CareerBuilder, and more. Photo: Heroku screenshot

Founded in 2007, Cloud application platform Heroku aims to help...

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San Francisco-based company Airbnb connects travelers with potential hosts online and with its mobile app. It was supported by Y Combinator in winter 2009. Founders Nathan Blecharczyk, Joe Gebbia and Brian Chesky pose in Gebbia and Chesky's apartment on Rausch Street in San Francisco, where the company was born.

Y Combinator supported Bump Technologies in summer 2009. The company's mobile app allowed two smartphones to connect and share data by being bumped together. Bump went offline in January 2014, after its team joined Google. Photo: Bump screenshot

Y Combinator supported Bump Technologies in summer 2009. The...

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San Francisco-based flight and hotel search website Hipmunk received funding from Y Combinator in summer 2010, the same year it was founded by Adam Goldstein and Steve Huffman. Photo: Hipmunk screenshot

Available for iOS and Android, Circle app alerts users to news, events, and friends nearby. The Palo Alto-based company welcomes more than one million new members each month. It was supported by Y Combinator in winter 2011. Photo: Circle screenshot

Under the leadership of Paul Graham, Y Combinator has become synonymous with startup success, nursing companies such as Dropbox, Reddit and Airbnb to stardom.

But in this booming tech economy, even Y Combinator can't keep pace. Graham's handpicked solution: handing over the reins to his acolyte Sam Altman, a 28-year-old San Franciscan who built his name on the Y Combinator brand.

Industry observers say Altman's meteoric rise to the top of the organization that gave him his start will be a catalyst for Y Combinator to expand and adapt to the tech world, where it is increasingly easy to start a company, if not sustain it.

Altman - who sold Loopt, the mobile location-tracking company he founded as a Stanford University student, for $43 million - conceded Tuesday that he is "still a little bit nervous" about filling the shoes of his mentor, who built a firm that has funded 630 companies with a valuation of $20 billion.

"It's like being given the New York Yankees - it is the gold standard," said Jason Calacanis, founder of this week's Launch Festival for startups and a longtime entrepreneur and investor. "His job is to protect the brand and grow the brand. He can only screw it up from here."

That said, the valley has faith in him, Calacanis included.

'Very smart guy'

Altman "has been an entrepreneur and an operator and someone who knows how to scale a business," said Alfred Lin, the former chief operating officer at Zappos.com who is now a partner at the Menlo Park heavyweight venture capital firm Sequoia Capital, which invested in Loopt. "He is a very smart guy and has the maturity to take it to the next level."

In 2005, Altman got his start as a member of the first class of entrepreneurs to graduate from the incubator. Then, Y Combinator's model was novel. It would invest a small amount of money in dozens of startups, then invite them to Silicon Valley for three months, where Graham and company would whip them into fighting shape so they could attract the next round of investment and talent.

But now, there are other incubator firms that specialize in nurturing budding companies in a specific industry rather than mixing a number of different entrepreneurs in the same class, Calacanis said. "And some of those firms are coming out stronger than the ones at Y Combinator," he said.

Insiders say it will be up to Altman to stay competitive with niche incubators, and capitalize on the international tech boom by opening Y Combinator outposts overseas.

Altman told The Chronicle on Tuesday that "philosophically I don't plan to change anything."

But operationally, he said, the firm could do more to help startups get up to speed and have prolonged growth, but he didn't have specific growth targets in mind. "If a startup is really good, we fund them," Altman said. "If there are more or less than we expect, we fund more or less."

Graham, who is stepping down from leadership next month, is an unflagging cheerleader for Altman. He is fond of recounting how Altman wormed his way into the incubator's first batch. Initially, Graham rejected Altman, dismissing the then-Stanford student as too young for the gig.

Persistence pays off

But Altman responded in kind by rejecting the rejection.

"I sent him an e-mail and said, 'Look, you're just a freshman, why don't you apply again next year?' He said, 'I'm a sophomore, and I am coming to interview,' " Graham said.

When the two met, Graham was impressed by his presence.

"I remember thinking this must have been what Bill Gates would have been like when he started Microsoft. He was a naturally sort of formidable, confident person," Graham said.

In a 2009 blog post, Graham listed Altman among the five most interesting startup founders of the past 30 years, alongside heavyweights such as Apple founder Steve Jobs and Google founders Larry Page and Sergey Brin.

Among friends and colleagues, Altman is known as much for his ideas and work ethic as a sort of professorial inclination. Think of him as a sort of T-shirt-clad sensei for the startup world.

'Old soul'

"He's young, but he's an old soul with lots of teaching to do and advice to give," said Sharon Pope, a former Loopt employee who worked for Altman. "He's really effective as an editor of ideas. And all of it can be done in 10 minutes because he talks so fast."

Graham described himself as a "bad manager" and said he decided to step down so he could focus less on the managerial tasks that occupied 90 percent of his time to work more directly with the entrepreneurs. He said he has been trying to hand the job to Altman since the summer of 2012.

Graham, who founded the firm with his wife, Jessica Livingston, has taken heat in recent months for comments about women in tech and how startups are held back by founders with foreign accents.

Altman stands by Graham and insists Y Combinator has been a supporter of companies founded by women and people of color.

"I know Paul really well, and I am 100 percent confident that had no effect (on his departure)," Altman said. "If anything, he had become such a public figure that things he had said got taken out of context."

Jude Gomila, co-founder of Heyzap and a 2009 Y Combinator alum, agreed that it was time for a changing of the guard.

"I think everyone's got a soft spot for Paul," he said. "But Y Combinator needs evolution. It needs to change. This is just that evolution."